Reddit’s WallStreetBets Drives Market Volatility for Cannabis Stocks

Driven by retail traders from /r/WallStreetBets, the Reddit-based message board that rocked the stock market last month with a run on GameStop stock, cannabis company stocks experienced volatile highs and lows this week, Business Insider reports. By Thursday, Tilray’s stock fell 48% from Wednesday, along with a 33% loss for Aphria, and a 23% drop for Aurora and Cronos, while Canopy Growth sank 24%.

The gains made for some cannabis companies, however, remain above progress seen over the last month. Tilray’s stock on Thursday remained 421% higher than its year-to-date, the report says. Exchange-traded funds including Global X Cannabis, ETFMG Alternative Harvest, and Amplify Seymour Cannabis were the best-performing ETFs of the year to date by the market’s Wednesday close.

A post on WallStreetBets described cannabis stocks as the new “darling” of the message board, which gained notoriety this month for its short squeeze on GameStop’s stock. According to a CNBC report, the interest in cannabis stocks could partly be related to high short-interest ratios – an indicator of how many of a company’s traded shares are being used in bets against the company. The report notes that Tilray’s short interest is equal to 22.5% of the shares available for trading.

Some posts on the message board are also hopeful that the Biden Administration plans to decriminalize cannabis federally. Canopy CEO David Klein told investors on Tuesday he expects the federal reforms sometime this year. Canopy on Tuesday also reported a 12% revenue growth of $152 million in the fiscal third quarter of last year, according to Barron’s, which could indicate at least some of its stock growth was not entirely the byproduct of retail traders and WallStreetBets.

Tilray Chief Executive Brendan Kennedy went a step further and said the company expects federal legalization in the U.S. in the next 12 to 18 months. In December, Tilray announced a merger with Aphria that, once finalized, would create the world’s largest cannabis company based on pro-forma revenue. Under the terms of the agreement, Aphria shareholders will receive 0.8381 shares of Tilray for each Aphria common share, while Tilray holders will continue to hold their shares with no adjustment to their holdings. Some of the Aphria trading over the last week could be linked to that deal as traders seek to get a piece of Tilray at the current Aphria rates.

Earlier this month, Senate Democrats – who hold a razor-thin 50/50 majority with Vice President Kamala Harris serving as the tie-breaking vote – announced plans for federal reforms.

According to a Wall Street Journal report, Sundial Growers was the most mentioned cannabis stock on the forum during the run, with about 8,500 mentions, which drove the stock up 79% on Wednesday, only for it to fall 19% on Thursday.